Turkey stocks stage cautious rally after last week's plunge, Istanbul mayor arrest

By Canan Sevgili

March 24 (Reuters) - Turkish stocks rose 3.1% on Monday to claw back some of the previous week's hefty losses, with the capital markets board banning short selling and tensions in the country rising after a court jailed Istanbul Mayor Ekrem Imamoglu pending a trial.

The Borsa Istanbul benchmark index .XU100 ended last week down 16.6%, its worst drop since the global financial crisis in October 2008. The banking sub-index .XBANK was 3.23% higher by 0856 GMT after falling more than 26% last week.

A Turkish court on Sunday jailed Istanbul Mayor Ekrem Imamoglu, President Tayyip Erdogan's main political rival, pending trial on corruption charges in a move that sparked the country's biggest protests in more than a decade.

Imamoglu's detention last Wednesday roiled markets, sending the lira, stocks and bonds sharply lower, and prompted an outcry from the main opposition party, European leaders and hundreds of thousands of protesters, who criticise the actions against him as politicised and undemocratic.

Analysts expect a prolonged period of political turmoil and uncertainty.

"The protests mark the most significant and widespread public reaction in over a decade, making the trajectory of events difficult to predict," said Wolfango Piccoli at Teneo.

"Once again, President Erdogan's political agenda has inflicted serious damage on Turkey's economic outlook."

The country's capital markets board on Sunday banned short selling on the Istanbul bourse and eased share buyback limitations and equity ratio requirements until April 25.

The lira TRYTOM=D3 traded at 37.9550 against the U.S. dollar, little changed from Friday's close of 37.9500 after falling 3.5% last week. In a meeting with bank executives on Sunday, the central bank said it would use all instruments effectively and decisively to maintain stability.

Turkey's international sovereign bonds also clawed back some of their losses, with the 2045 maturity US900123CG37=TE up 0.7 cents to be bid at 83.7 cents on the dollar, Tradeweb data showed, after falling more than 3 cents last week.